1. Field of the Invention
This invention is directed to a system for verifying the authenticity of an instrument and for processing bearer documents such as financial documents, and more particularly directed to a system for verifying the authenticity of a check, for identifying a bearer of a check, and for settling and reconciling in real-time accounts related to check cashing and check deposit transactions.
2. Background of the Art
Bearer documents have been used for centuries to settle accounts in trade and a variety of other financial transactions. Bearer documents include bank drafts or “checks”, stock certificates, bond certificates, deeds, money orders, travelers checks and the like. Early bearer documents were prepared and processed manually. These manual procedures were typically labor and time consuming, somewhat inaccurate, and generally unsuitable as the volume and scope of commerce increased.
During the past several decades, efficiency in the bearer document processing and handling has improved with the introduction of various coding systems and electronic scanning systems. As an example, modem bank drafts, hereafter referred to as “checks”, are encoded with visible markings that identify a financial institution, bank routing and transit numbers, and an account number. The encoded information, referred to as the MICR number, can be electronically scanned when processing a check thereby increasing the efficiency in debiting the proper account in the proper financial institution. As another example, stock and bond certificates often include encoded information, such as visible bar codes, which identify pertinent financial information regarding the bearer certificates. Other present day bearer documents such as travelers checks, money orders, deeds and the like often include encoded visible markings that aid in processing and handling.
In further examining the prior art, attention will be directed primarily toward the processing of checks. Processing includes the redemption or “cashing” of a check against an account, the depositing of checks into an account, and the settling of accounts involved in the transactions.
The check redemption process is typically initiated when a customer presents a check to a vendor in exchange for cash, in the amount to cover a purchase of merchandise, or some combination thereof. When fraud is involved, checks are typically redeemed to obtain cash rather than to obtain merchandise. Checks typically include a visible, machine readable MICR numeric code that identifies an account number from which funds will be drawn, and routing and transit numbers of a financial institution that holds funds within the specified account. A bank is an example of such a financial institution. The check also typically includes a visible, clear text check number. The vendor passes the check through a scanning device. The scanning device reads the MICR numeric information imprinted visibly on the check, and transmits the information to a remote check verification center. Land telephone communication is typically used to link the vendor's scanner with the check verification center.
The check verification center maintains a file, commonly referred to as a “negative” file, which lists a variety of historic financial data that can be related to numbers within a MICR number. As an example, the file lists the number of checks redeemed against an account with insufficient finds. These checks are commonly referred to as “bounced” checks. As another example, the file may also lists negative credit rating information, such as defaulted or missed loan payments, attributable the owner of the account. It is emphasized that the negative file contains only historic information regarding the account and the account owner. Furthermore, the file contains only “negative” financial information regarding the account and the owner of the account, thus the origin of the file name. If an account number within the file has no negative annotation, this indicates that there have been no historical problems involving the account or the owner of the account.
The check verification center returns, to the point of check scan, an indication of whether or not it has found any match with the scanned MICR number and information contained within the historic negative file. If no match is found, it is assumed that the check is authentic, the bearer of the check is the owner or an authorized representative of the account, and that the account contains at present sufficient funds to cover the amount of the check. The vendor typically redeems the check if no match in the negative file is indicated. If a match is found, the vendor is thereby warned of a potential problem with the check based upon historic data. The vendor must now decide whether or not to accept the questionable check. The decision can be based upon criteria such as no questionable checks are accepted for redemption, only questionable check less than a predetermined monetary limit are accepted for redemption, questionable checks are accepted for redemption only after approval of the check by a manager, and the like.
The vendor periodically gathers together all redeemed checks for further processing. Typically, these checks are gathered together as a batch at the end of a business day, and this batch is physically transported to a financial institution, such as a bank. The vendor can deliver the batch to the bank, or the batch can be picked up and delivered by a third party, such as an armored car delivery service. The bank processes the checks and settles accounts within the bank through normal banking procedures. The batch is then physically transported to a financial clearing house (operated by the Federal Reserve System within the United States) where numeric MICR information on the check is scanned, the amount of the check is tabulated, and the bank settles with other banks involved in the transactions using normal banking procedures. During processing, the check is physically and electronically “cancelled” so that it can not be redeemed or processed again.
At the end of a time period such as a month, evidence of the cancelled check is sent to the owner of the account. This can be the actual cancelled check, an image of the cancelled check, or a tabulation of the check number of cancelled check.
The check cashing process described above exhibits several significant deficiencies that can be costly, inconvenient and time consuming to all parties involved in the transaction. These deficiencies are summarized in the following paragraphs.
Within the prior art system, the vendor and the check verification center assume that the check is authentic and not a counterfeit. The vendor can visually inspect the check for authentic paper weight and other authenticating physical properties, but modern copying equipment has rendered the visual identity of counterfeit checks essentially impossible. The system as described provides no quantitative means for checking the authenticity of the check.
With the prior art system, it is assumed that the bearer of the check is, in fact, the owner of the account specified in the MICR code, or is an authorized representative of the account specified in the MICR code. The identity of the bearer can only be checked manually by the vendor. As an example, the vendor may ask to see the bearer's driver's license in an attempt to verify the name, signature and appearance of the bearer. This method of checking identity is flawed. As an example, the bearer can posses a fraudulent drivers license. The prior art system provides no quantitative means for verifying the true identity of the bearer.
If the check is counterfeit, or if the check is authentic but stolen, redemption of the check by an unauthorized person results in a loss to the true owner of the account, a loss to the vendor, a loss to the financial institution, or a loss to all parties.
Processing within the prior art system is also costly, risky and time consuming. Using the example above, batches of redeemed checks are first transported to the bank typically at the end of the business day. This is costly, time consuming and risky in that the batches can be lost, stolen or catastrophically destroyed during transportation. The batches must again be physically transported to a central clearing house at a cost in time and money, and at risks of being lost, stolen or catastrophically destroyed during transportation. Often twenty four hours or more elapse between initial redemption by the vendor and the final settling of all accounts involved.
Finally, the prior art system requires that evidence of the cancelled check be physically sent to the owner of the account within a given time interval, which is typically one month. This again is costly and time consuming.
The previous discussion is directed to steps involved in redeeming or cashing a check using prior art systems. An integral part of the checking system also involves the depositing of checks into an account at a financial institution such as a bank. Deposits can be made directly at the bank, or alternately at an unmanned automatic teller machine (ATM) which are readily available and heavily used by the public. Prior art deposit process at an ATM will be discussed. Typically a deposit form, indicating the amount of the deposit and the account into which the deposit is to be made, is completed by the customer. The deposit form, along with the check or checks to be deposited, are placed in an envelope which, in turn, is placed in a secured ATM drop-box. Present banking laws in the United States require that the banks pick up deposits, if any, once every twenty four hours at every ATM through which the bank has consented to accept deposits. Experience has shown that the cost to pick up is about seventy five dollars per ATM. If there are no deposits at a given ATM within a twenty four hour period, or if the amount of the deposits is relatively small, the financial institution can incur a significant loss in servicing the “low volume” ATM deposit. Even with a reasonable deposit total, the deposits must be picked up and physically transported to the bank where the deposit is processed and involved accounts are settled.
Deposits made at the bank, rather than at a remote ATM, must still be processed as outlined above. Using prior art methodology, the subject account is usually not settled until the following day.
Prior art ATM deposit procedures are also subject to fraud. In particular, there is no quantitative method for checking authenticity of the checks since no human representing the bank is present at the transaction to make even a qualitative judgement of authenticity. Although check deposits at a teller window at a bank can be visually inspected by the teller, there is still no quantitative procedure that can be used by the teller to delineate authentic checks from sophisticated copies.
The present invention is directed toward eliminating or minimizing previously discussed deficiencies in prior art methods and apparatus for processing bearer documents such as checks.